Government relaxes FDI in multi-brand retail norms

The definition of small industries has been changed and now procurement of manufactured/ processed products can be sourced from Indian micro medium small enterprises (MSMEs) that have a total investment of $2 million from the earlier cap of $1 million.

The government on Thursday relaxed norms for foreign direct investment or FDI in multi-brand retail, paving the way for retailers like WalMart to set up shop in the country.

The Department of Industrial Policy and Promotion (DIPP) had earlier moved a note seeking to change the norms of outsourcing.

The definition of small industries has been changed and now procurement of manufactured/ processed products can be sourced from Indian micro medium small enterprises (MSMEs) that have a total investment of $2 million from the earlier cap of $1 million.

The government has also changed the criterion for cities where multi-brand retail chains can open stores. As per the earlier norm, stores like WalMart could be opened in cities that have above 10 lakh population as per the 2011 census, which has now been relaxed. Trade Minister Anand Sharma said it would be left to the discretion of the state governments.

The government has also clarified that the 50 per cent investment norm in the back-end infrastructure for retailers like WalMart would only be applicable for the first tranche of investment of $100 million.

So, in simple terms if WalMart were to investment $100 million in India in the first tranche, 50 per cent of it or $50 million would be towards setting up backend infrastructure.

If WalMart were to invest another $100 million, the 50 per cent ceiling in backend infrastructure would not apply.

Walmart had earlier reportedly told the government that it can procure only 20 per cent from small industries against the 30 per cent procurement norm.

However, the government has not slashed the 30 per cent local sourcing norm but has altered it saying that it will be applicable for the first engagement only.